Natural gas advanced in New York on speculation that an unusually cold start to the new year will stoke demand for the heating fuel.
Gas gained 1.4 percent as Commodity Weather Group LLC predicted a push of below-normal temperatures into the Northeast, Midwest and South through Jan. 8. The high in New York City on Jan. 3 will be 18 degrees Fahrenheit (minus 8 Celsius), 21 below normal, according to AccuWeather Inc.
“This is a function of the cold front on the horizon,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “You’ve got your first possible Northeast snowstorm on the horizon Thursday or Friday and that is going to really chill the Midwest.”
Natural gas for February delivery rose 5.9 cents to settle at $4.427 per million British thermal units on the New York Mercantile Exchange. Trading volume was 37 percent below the 100-day average at 2:42 p.m. The futures are up 32 percent this year, the biggest gainer in the Standard & Poor’s GSCI gauge of 24 commodities.
The premium for February contracts versus March widened 1.3 cents to 4.5 cents. March gas traded 14.1 cents above the April contract, compared with 15.8 cents on Dec. 27.
May $6 calls were the most active options in electronic trading. They were 0.5 cent higher at 3.8 cents per million Btu on volume of 782 at 3:21 p.m. Calls accounted for 73 percent of trading volume.
“Some of the coldest air of the winter so far threatens the Midwest by early next week,” Matt Rogers, president of Commodity Weather in Bethesda, Maryland, said in a note to clients today. The region will see lower-than-normal readings through Jan. 13. The Midwest is the nation’s biggest consuming region for gas used as a heating fuel, government data show.
The low in Chicago on Jan. 2 will drop to 6 degrees, 13 below normal, and Dallas will be 31 degrees, 6 lower than average, according to AccuWeather in State College, Pennsylvania.
Gas futures have rallied 24 percent since the end of September, heading for the biggest gain in six quarters, as the U.S. experienced the coldest start to the heating season since 2000, according to Rogers. The number of heating-degree days, a measurement of gas demand factoring in population, will total 1,514 from November through December, up 15 percent from the same time last year, Commodity Weather data show.
Spot gas in the Northeast jumped to a two-week high in anticipation of dropping temperatures. Gas at the Algonquin City Gates, which includes Boston and other New England deliveries, almost tripled to $24.60 per million Btu from $8.50 on Dec. 27 on the Intercontinental Exchange. Transco Zone 6 for New York City gained 36 percent to $6.0548.
U.S. stockpiles dropped by 763 billion cubic feet in the six weeks ended Dec. 20 to 3.071 trillion, almost double the five-year average of a 392-billion decline for the period, Energy Information Administration data show. A deficit versus the average widened to a record 9.2 percent from a surplus of 1.5 percent at the start of November.
Inventories probably fell another 139 billion cubic feet last week, Tim Evans, an energy analyst at Citi Futures, said in a note to clients today. The five-year average drop for the week is 121 billion, EIA data show.
“The market will need to see strong withdrawal reports for the rally to continue,” John Kilduff, partner at Again Capital LLC and editor of the Energy OverView newsletter in New York, wrote today. “We still believe that $5 gas is likely for the February contract, but it will take some severe cold.”